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Business Management

Acq-hiring: Tapping Talent in the Tech Sector

The technology sector provides the ideal climate for startups: it’s fast-growing, fuelled by market need, and creativity and potential are valued as highly as career experience. However, established businesses in the sector face a talent scarcity. This is not only the result of a shortage of top talent and individuals with the relevant skillsets but also the sheer wealth of different opportunities within the sector.

Today’s generation of highly skilled technologists are looking to become founders as much as they are employees, forcing large firms to dream up new ways to benefit from bringing this talent on board. Enter ‘acq-hiring' – the term for when a small tech startup is acquired by a large firm for its talent, usually its engineers, rather than its IP or technology. Whether you view the trend as intriguing or alarming, the proliferation of acq-hires in the tech sector can hardly be considered surprising as it offers technology giants a rich source of talent they would otherwise struggle to entice.

The trend has been gaining traction in the US over the past years where large tech companies such as Google, Facebook and Yahoo! have been employing the strategy to help fill their ever-expanding talent quotas. The payment — in the form of stock — is often distributed among the startup’s founders, employees and investors, with acquired employees also getting a rich salary and additional stock options.

Recent high-profile examples include Facebook’s acq-hiring of long-form blogging platform Storyline in March 2013, and Yahoo!’s takeover of consumer frequent-flyer service, MileWise, shortly after. Yahoo has since acquired Blink, the mobile messaging app that allows users to share messages that self-destruct, to poach the talent behind it.  

Although most are headquartered in Silicon Valley, still the undisputed epicentre of the technology industry, many firms are beginning to see the UK as one of the confirmed hotbeds of technology talent. In May, Google made a decisive move, snapping up tech startup Divide, maker of a mobile app that offers a secure means of separating personal and work-related data on company-owned devices. The company was dreamt up at a kitchen table in London by co-founders Andrew Toy, Alexander Trewby and David Zhu. The acquisition of Divide’s team can be considered timely, given that Google is reportedly working on new business-specific features for the next version of Android. Google has also snapped up UK startups including Spider.io and, with just seven employees, it’s another acq-hire purchase.

Instances of acq-hiring in the UK are unlikely to stop here. The British Government has been phenomenally supportive of tech startups, allocating significant resources, expertise and investment to the sector. And it appears its policies are working. Between March 2012 and March 2013 alone, a staggering 15,720 new businesses were established in the Tech City/Silicon Roundabout area.

Of these businesses, however, the harsh reality is that around 90% will fail. One of the reasons is that funding is only one factor in a tech firm’s success. A great idea can be poorly implemented. Consumers expect technology to work first time and an app riddled with bugs will quickly lose users. In some cases, the technology just doesn’t strike the right chord with consumers. It may not be specifically geared towards a customer base or it may fail to keep up with evolving social media practices. 

The point is that even when a company has a great pedigree and beyond-generous investors, it can still fail. With numerous examples of this kind of slow, painful decline (and some that could still easily go this way), it’s easy to see why being acq-hired might present an attractive option for a small tech company. Especially when data shows that, on average, an acq-hired start-up has not received funding for around 15 months.

The process may be a route off a sinking ship for some, while others may embrace the opportunity to get a big-name company on their CV. However, as may well be expected, acq-hiring deals often come with their fair share of controversy. Although the purchasing corporation cannot force the startup’s employees into a new contract, some may feel under a certain level of duress to work for an organisation that they did not choose.

The on-boarding process is therefore crucial to the success of the takeover and is far more complicated than offering a generous salary and stock options. Many people working in early-stage start-ups, having been involved from the word ‘go’, are heavily invested in both the project and the culture that they have helped develop. Employees tend to retain a certain amount of creative freedom and influence over the direction the company is moving. Migrating to a large tech firm means employees could end up with less input and feel undervalued. Organisations need to ensure they offer enough opportunities for immediate and long-term development to ensure that enthusiasm doesn’t diminish over time. It’s about taking the energy and creativity of a start-up and combining it with the capacity and funding of a global tech firm.

Employee benefits also play a crucial role. A well-implemented and successfully communicated flexible-benefits scheme can demonstrate the organisation’s appreciation of their employees as individuals, their varying needs, and a desire to accommodate these.

It is easy to view acq-hires as David-and-Goliath situations (where Goliath this time always wins) but they’re really far more nuanced than this. If larger corporations can foster the talented individuals within them, engage and nurture their creativity to mutual advantage, surely this presents a situation that is certainly not all bad.

 

Pete Craghill is CTO at Thomsons Online Benefits, a global benefits management and employee engagement software business working with seven of the 10 largest global software firms

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